Collaborative linkages refer to the set of
formal and informal relationships that create a level of mutual
cooperation and dependence between firms (Leiblein & Woo,
1996). Recently, several authors (see for example Eisenhardt
& Schoonhoven, 1996; Mowery, Oxley & Silverman, 1996)
have introduced resourcebased view (see for example Barney,
1986) to explain why firms form strategic alliances. According to
this view, individual firms accumulate capabilities over time,
and collaboration is seen as one way to share and acquire these
capabilities. Firms become more proficient at what they do not
only from learning through direct experience but also through
collaborative arrangements with other firms (Mody, 1993; Powell
et al., 1996).

Newly created organizations, which face the
liability of newness in many areas, are especially likely to
benefit from collaboration. Shortcomings in technical, marketing
or production expertise, for example, may be overcome by
acquiring material and knowhow resources, or legitimate
support from a collaborative partner (Eisenhardt &
Schoonhoven, 1996). Mowery et al. (1996) provided empirical
results on how technological capabilities can be acquired through
collaboration. Especially newcomers in emerging industries are
likely to benefit from collaboration with larger established
firms (Shan, Walker and Kogut, 1994). For example in
biotechnology, many entrepreneurial organizations possess
expertise in R&D, but lack production and marketing
capabilities to commercialize their innovations.

Since firm resources are unique and can
only be built over time (for time compression diseconomies, see
Cohen & Levinthal, 1989), experience and cumulative routines
should be an asset for a technology partner. Consequently,
experienced firms are likely to be especially good partners for
new startups. Furthermore, it also seems that the more
relationships the startups have, the more likely they are to
acquire capabilities for growth and innovation.

Whereas resourcebased view discusses
innovation as based on capabilities, industrial organization
theory claims that market power is the fundamental source of
innovation. Since large companies are better positioned to take
advantage of innovation, monopoly power of large companies is the
main source of technical progress (Schumpeter, 1950). However,
under some conditions, the technological leadership of dominant
firms of the industry tends to be overtaken by new entrants.

Gilbert and Newbery (1982) and Reinganum
(1983) were able to reconcile these two opposite cases by
analyzing the difference between incremental and radical
innovations. They found that industry incumbents invest more in
incremental improvements (Gilbert & Newbery, 1982), but under
uncertainty (when opportunities for radical innovation exist),
incumbent monopolists will rationally invest less in innovation
than entrants will, for fear of cannibalizing the stream of rents
from their existing products (Reinganum, 1983). In all, in the
industrial organization economics literature, the established
monopolist has a somewhat reduced incentive to innovate radically
because he is earning rents from the old technology (Henderson,
1993). Similarly, Abernathy and Utterback (1978) discussed how
over time, the focus of incumbents' innovative efforts shifts
from product to process innovations. Furthermore, if we assume
that organizational change is risky, or almost impossible (Hannan
and Freeman, 1984), incumbents may not even be
capable of radical innovation. Multiple empirical studies have
explored the effects of this reduced incentive to innovate; and
have found that extensive experience with a technology may be a
substantial disadvantage (Hannan and Freeman, 1984; Tushman and
Anderson, 1986). Christensen and Rosenbloom (1995) studied how
longterm customer relations may inhibit companies from
radical innovation. They showed how new technologies or resource
practices may seem initially weaker than the old to those who
have extensive experience with the old methods (Christensen and
Rosenbloom, 1995). Also Stuart (1996) proposed that
institutionalization of organizational routines leads to inertia
in innovation directions; incumbent routines (Nelson and Winter,
1982) that are helpful in exploiting existing knowledge may be
inefficient in creating radical innovations. Henderson (1993)
further showed that incumbents spend more on incremental
innovations and cannot utilize their radical innovation
investments effectively. What seems relatively unexplored,
however, is how the incumbents lack of incentives for
radical innovation affects cooperative output, that is, what are
the effects of the relationships between industry incumbents and
entrepreneurial entrants on innovation.

It has been proposed that the reduced autonomy
related to cooperation with older firms in the industry may
curtail innovative output of the startup if the established
firm interferes with the startup's research agenda (Shan et
al., 1994). Reasoning in this paper is more specific in a sense
that we propose that incumbents as R&D partners could have a
negative effect on radical innovation outputs while their effect
on incremental innovation is likely to be positive. Established
companies may reduce the radical type of innovativeness of
startups by proposing and favoring traditional research
practices. Somewhat in contrast with the resourcebased view
arguments explained above, we propose that while experienced
partners are likely to enhance innovativeness of the startups in
general, they are likely to prevent radical innovation. To
reconcile these ideas with the resourcebased view, it is
proposed that while collaboration with incumbents provides a way
to exchange capabilities needed for incremental innovation,
radical innovation requires a different set of capabilities not
possessed by current incumbents.

Another issue ignored by the
resourcebased view is the costs involved in collaborative
relationships. Since the number of cooperative partners increases
the probability of opportunistic behavior, as well as the
likelihood of decreased appropriability of knowhow
(Mosakowski, 1991; Brockhoff, 1992), there could be a negative
relationship between the number of partners and innovative
output. The more technological partners you have, the higher the
risk of knowledge spillovers, for example. Since radical
innovation outcomes are especially likely to be vulnerable to
these risks, it is likely that a large number, although positive
for innovation in general, is going to be harmful if radical
innovation is the goal of the relationship.